FSA Chief delivers Bank Bonus Warning

Exclusive: FSA Chief Delivers Bank Bonus Warning

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Mark Kleinman

January 06, 2012 10:46 AM

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The City regulator is to warn Britain’s bank chiefs that it will
reject their plans to pay out billions of pounds in bonuses unless they
demonstrate that they are retaining sufficient capital to weather a
worsening storm in the financial system.
I have learned that
Hector Sants, chief executive of the Financial Services Authority (FSA),
will meet the bosses of the biggest UK-based lenders during the next
few weeks to reinforce the message that bonus and dividend payments can
only be settled upon once banks have satisfied regulators that their
capital positions are sufficiently robust. A number of the relevant
meetings between Sants and the bank chiefs are understood to have taken
place already.
Sants’ warning echoes a statement from the Bank of
England’s new Financial Policy Committee last month that capital
preservation should be prioritised over payments to staff and
shareholders.
The FSA told me this morning that it was “vigorously
engaging with the major UK banks to ensure they complied with the FPC’s
recommendation to retain capital by reducing distributions such as
bonuses”.
One senior banker said that Sants was taking a harder line on the issue of bank pay than in any previous year.
Sir
Mervyn King, Governor of the Bank of England (into which much of the
FSA will be subsumed next year), said last month that hoarding capital
was essential in what he called “an exceptionally threatening
environment”, a reference to both the Eurozone crisis and the troubled
UK economy.
The FSA’s intervention is therefore relatively
unsurprising. Nonetheless, it reinforces the fact that the looming bank
pay round promises to be the most contentious since the industry was
rescued by taxpayers in 2008.
That’s despite the fact that pay
levels at banks such as Barclays and Royal Bank of Scotland (RBS) will
be depressed by the comparatively poor performance within their
investment banking divisions.
City investors are also turning up
the heat on bank boards over the issue (belatedly, in the eyes of many
people). Last month, the Association of British Insurers wrote to the
chairs of the big banks’ boardroom pay committees to urge them to
rebalance the amounts paid to employees and shareholders.
The FPC
has also warned that it could intervene to place a cap on the proportion
of bank profits that can be distributed in bonuses and dividends.











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